Even as East Coast ports scramble to complete the harbor deepening projects they need to handle the larger ships that will start coming through the Panama Canal in 2015, a shift in trade lanes is under way that will bring more big post-Panamax ships to their terminals this year.
They’ll just be coming from another direction.
Container lines that introduced all-water services from Asia to the East Coast during the last decade plan to deploy more large post-Panamax ships on their existing services from Asia to the East Coast via the Suez Canal this year while consolidating and even reducing their loops via Panama.
“The area to watch is the Suez routes,” said Curtis Foltz, executive director of the Georgia Ports Authority. “Most carriers are taking a neutral position on the Panama routes. Suez will be the place for expansion on the East Coast, and people will be looking to upgrade tonnage and consolidate services where they make sense.”
The G6 Alliance among the six carriers in the Grand Alliance (OOCL, NYK Line and Hapag-Lloyd) and the New World Alliance (APL, Hyundai Merchant Marine and MOL) plans to announce more Asian services to East Coast ports via the Suez Canal in the next few weeks, according to the head of the one of those carriers’ Americas division, who asked not to be identified because plans are not finalized.
At the same time, those carriers plan to consolidate some of their loops through the Panama Canal, because making money on the Panama Canal route is difficult, he said.
“Any carrier that has built a significant number of post-Panamax ships is looking to deploy 8,000-TEU ships to the East Coast if they haven’t already done it,” said Jim Newsome, president and CEO of the South Carolina Ports Authority. “MSC has done it; Maersk has done it; Maersk and CMA CGM are looking to do more; and the G6 Alliance will announce one 8,000-TEU service, the first of its East Coast services using that size ship.”
The only carriers not deploying post-Panamax ships on the Suez route to the East Coast are those that haven’t taken delivery of the big fuel-efficient post-Panamax ships, such as Cosco, Yang Ming and Hanjin, three of the four carriers in the CKYH Alliance, he said.
The reason for the shift is pure economics. Carriers can make a profit using large post-Panamax ships that can carry up to 9,200 20-foot-equivalent units on the Suez route to the East Coast and have lower slot costs than Panamax ships. But they can’t make a profit on the Panama route because the less fuel-efficient Panamax ships are limited to a capacity of around 4,800 TEUs by the size of the existing Panama Canal locks.
The new post-Panamax ships are 30 percent more fuel efficient than the older post-Panamax ships, resulting in savings of as much as $40,000 a day in fuel costs.
Compounding the higher operating cost on the Panama route is resistance from U.S. retail importers who won’t pay the freight rates carriers are seeking for that trade lane. In preliminary annual contract talks for 2013, trans-Pacific carriers have sought a 2 percent increase on their all-water services to the East Coast via Panama, but the beneficial cargo owners have demanded a discount of 3 percent, according to one informed port source.
As a result, port executives expect carriers to consolidate some of their Panama services to the East Coast and to refrain from introducing any other new services aside from upgrading ships on the Suez route. “I’m not anticipating any new services this coming year, because the carriers are just trying to survive the year,” said Jim White, executive director of the Maryland Port Administration. “There is 6 percent more (new ship) capacity coming out this year, and I don’t think volume will grow at 6 percent.”
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When final figures are in, White expects 2012 throughput at the Port of Baltimore to show 3 to 6 percent growth, but he thinks 2013 throughput will be flat. “I think it’s going to be a very tough year for the carriers. We want to make sure we maintain our market share in 2013, so when the world economy does improve, we’ll be there with our market share so we’ll be ready to come up with the tide.”
East Coast ports’ business in the year ahead is riding on more than just the global economic recovery. “Right now, I think the outlook for 2013 will be dictated by the outcome of how the government is going to deal with the fiscal crisis, combined with the ILA negotiations,” Foltz said.
The deadlines for both issues come in February. “If you assume both issues get resolved timely, then I think our business in Savannah returns to normal in the March timeframe, and we can expect reasonable growth in the coming year to the tune of 4 to 6 percent year-over-year.”
Charleston, which experienced strong volume growth of 9.6 percent in TEU terms for 2012, is looking for volume growth of 8 percent this year, in part from the larger ships it expects to see on the Suez route, but also from surging export volumes to emerging markets.
“We need to grow above the market, and we can grow above the market because of the deployment of larger ships even before the Panama Canal is expanded in 2015, and we have the deep water to handle that,” Newsome said. Although Europe is still Charleston’s largest export market, exports to China are growing more rapidly and will fuel the port’s growth.
The Port of Virginia, which, along with Baltimore, has the deepest harbor on the East Coast, expects to capture port calls at Norfolk by any Suez services that deploy larger 8,000-TEU ships this year. “There may be one or two Suez services that enter the trade this year, and if that is the case, we have already had multiple discussions on Virginia’s advantages over other East Coast ports with the ocean carriers,” Virginia Port Authority spokesman Joe Harris said. “If there are new Suez services coming, we are in a very good position to capture first-in and last-out calls.”
The VPA, which recorded the second-best cargo volume in its history in 2012, with an overall increase of 9.8 percent, anticipates 6 percent volume growth this year.
At the Port of New York and New Jersey, the year-to-date container throughput was relatively flat at 0.3 percent year-over-year through November because of the impact of the cargo diversions caused by the ILA strike threat and by Hurricane Sandy, which shut the port for almost a week starting on Oct. 29.
The port’s volumes spiked during the summer as retailers scrambled to get their products into warehouses and onto store shelves before the first ILA strike deadline on Sept. 30.
“We saw that jump in July, August and September,” said Peter Zantal, general manager of strategic analysis and industry analysis for the Port Commerce Department. “Those months were a much higher percentage of our annual volume than they normally would be.”
The final throughput numbers for the port aren’t completed yet, but are likely to be relatively flat year-over-year. The port is not releasing growth projections for 2013 because of the unresolved negotiations for a new contract with the ILA, which faces a deadline of Feb. 6. But it does expect to see more cargo growth on the Suez route.
“China will remain our largest trading partner, but we foresee increasing import volumes from Southeast and East Asia as manufacturing of some products migrate from China to locations like Indonesia, Vietnam, India, Pakistan and Bangladesh,” said Richard Larrabee, port commerce director of the bi-state port. “This should lead to increased cargo volumes coming to our port via the Suez Canal, which allows ocean carriers to realize economy of scale by using post-Panamax vessels.”
The port in 2012 completed the deepening to 50 feet of channels to Port Jersey, the Kill Van Kull, Newark Bay and Ambrose channels, which will allow larger post-Panamax vessels to access the port. It will complete the Arthur Kill deepening by the end of 2014 and expects to raise the roadway of the Bayonne Bridge to provide a 215-foot clearance by 2015. The architectural plans are complete and the environmental planning process for the project will be completed this year.
To meet the continuing strong growth in its intermodal container traffic, the port will begin construction in 2013 on a new on-dock rail terminal in Port Jersey, next to Global Container Terminal, and on the expansion of the Port Newark ExpressRail facility.
“We expect to increase the use of intermodal rail in the port (which currently stands at approximately 14 percent) this year as we increase our penetration into the Canadian, New England and Midwest markets,” Larrabee said.